Engineer pitches Denali pipeline

Posted: Friday, October 24, 2008

By HAL SPENCE

Since launching a joint effort in April to build a private natural gas pipeline from the North Slope to the Lower 48, BP and ConocoPhillips are eyeing an open season by 2010 and hope to have U.S. and Canadian permits in hand by the end of the following year.

The two oil and gas giants say they expect to spend $600 million over the next few years to further the project dubbed "Denali -- The Alaska Gas Pipeline."

John White, an engineer with BP, spoke at an Anchor Point Chamber of Commerce luncheon Wednesday about progress in the multi-billion dollar project.

"We've got a team mobilized and it's growing every day. I'd say we have the critical mass to actually get the project started," he said. "We actually completed a field program this summer."

According to the companies, $40 million was spent on summer field work, which included delineating wetlands, investigating archeological sites, identifying previously impacted sites, assessing locations for crossing streams, collecting technical data, route reconnaissance, and photography.

White explained that the proposed gas line would follow the path of the existing trans-Alaska oil pipeline to Delta Junction where it would diverge to follow the Alaska Highway into Canada to the Alberta border. There it would connect to existing infrastructure, after covering a distance of about 2,000 miles requiring between 2 million and 3 million tons of steel.

The project may grow to include another 1,500 miles from Alberta to U.S. markets and an additional 2 million tons of steel.

It is likely most, if not all, the necessary steel will be manufactured overseas, as the U.S. does not have the manufacturing capacity to produce the pipe, White said.

"Ultimately, we see the market for Alaskan gas as being in the Midwest. Chicago is about a 20 billion cubic foot per day market," he said.

The daily throughput of the proposed gas line would be about 4 billion cubic feet per day, representing about 6 percent to 8 percent of the U.S. daily consumption.

"The Lower 48 is anticipating that Alaska gas is going to flow, so that's good. There's a market for it," he said.

The U.S. is the largest gas market in the world, he noted.

"If Alaska gas doesn't make it to the Lower 48, they're going to get their gas from LNG from overseas. That's just the way it's going to work," he said.

Known gas reserves on the North Slope are about 35 trillion cubic feet, enough to fill the gas line for a quarter century. The line's economic life, however, is twice that, meaning there will be impetus for exploration and development of suspected gas reserves yet to be discovered that could amount to between 100 trillion and 200 trillion cubic feet, White said.

Shipping the gas to market will require ancillary infrastructure, and a lot of it.

The project envisions constructing the largest gas treatment plant of its type in the world near Prudhoe Bay where carbon dioxide and water will be removed from the gas. It will then be compressed and chilled for shipping down the line. The gas line will be almost entirely underground. Chilling the gas will preserve the permafrost.

Other infrastructure upgrades will have to be done to roads, bridges and ports to accommodate shipping of materials for pipeline construction.

"Unlike TAPS (the trans-Alaska pipeline), we at least have roads, but in some cases they're not in real good shape," he said. Upgrades may be necessary to the Richardson, Dalton, Haines, Elliot and Alaska highways, as well as to bridges along the Steese, Glenn, Parks and Haines highways. The Port of Haines may need infrastructure work, as well.

The project will include at least five "off-take" points in Alaska for supplying gas to Fairbanks, Yukon River communities, Southcentral Alaska, Valdez or other locations. A survey of in-state demand will be conducted soon, White said.

Asked how ready Alaska's workforce is to fill project jobs, White said it was not a pretty picture. The state's skilled labor is aging.

"That's true of the North Slope in general. Take a flight up to the slope, and it's mostly guys like me -- a sprinkling of gray hairs," he said. "We've got a lot of work to do."

The two companies envision training programs and are making some $30 million available for job training programs. There will be a demand, White said, for more than just welders. Also needed will be general construction workers such as carpenters, electricians, instrument people, heavy equipment operators, surveyors, engineers and more, he said.

If all goes well, the Denali pipeline project will be ready for an open season -- a point at which the cost to shippers will have been figured and BP and ConocoPhillips will be seeking long-term transportation commitments from gas producers who want to utilize the line. BP and ConocoPhillips are themselves major gas producers.

The contracts obligate customers to pay costs whether or not they actually ship gas. They also give banks confidence in lending money to the pipeline company.

White said Denali would be an open-access line, rates would be distance sensitive (that is, local users won't pay the same rate as for gas shipped to Chicago), and it will be designed for efficient expansion.

Referring to an "optimistic," four-phased project timeline, White said they hope to hold the open season in 2010 and have begun filing applications for permits by the end of that year. As U.S. and Canadian permits are being approved and acquired, detailed designs would be developed, and soon after, equipment and material contracts let.

Phase Four, he said, would be five years long, including a year for procuring material, a year for mobilization -- building camps and the like -- and three years of construction.

"That sounds like a long time, but that is a tight timeline," he said, adding that a lot of it was out of the companies' hands. "It's all about regulatory process and how fast that goes."

Competing, in a way, with Denali is TransCanada Corp.'s pipeline proposal under the state's Alaska Gasline Inducement Act (AGIA) process. A major difference between the two is that BP and ConocoPhillips have gas of their own, TransCanada, a pipeline company, does not. TransCanada, however, has a pledge of $500 million in state money to further its project.

"Ultimately, there can only be one pipeline," White said.

The outcome of open seasons may decide which project gets the go-ahead to build a line. White said he thought that at some point the two projects would combine.